The fund flow statement summarizes the source of funds and the application of funds, compares the balance sheets of two different dates, and analyzes where the company has earned money and where the company has spent money.
Thus, the format helps in getting a clear understanding of the fund inflow and outflow, which are considered to be important information to evaluate the financial position of the business and any deviations or anomalies from the plans or projections. This is equally useful for the management and all stakeholders of the company.
The fund flow statement format is a layout that compares the balance sheets of the current and the previous year to understand and analyse the flow of funds of the different accounting periods. This comparison helps us to assess from which source the funds are coming and how efficiently they are being utilized.
Such information in a format of fund flow statement points out any loopholes and misutilization of money within the business and prevents financial downfall in an unexpected way. The management can track whether the money is being used as per the plans and strategies framed by then and look for any negative deviations that should be checked and controlled on time.
Thus, the working capital of the business is successfully tracked through this format. Working capital in a crucial component of any company since it provides the required funds for managing the daily business affairs like paying bills for office expenses, meeting the accounts payables or any short-term debts, arranging and maintaining the inventory etc. It evaluates the liquidity levels that can be used to meet the financial requirements.
Thus, this fund flow statement format in excel acts as a guide to analyse the movement of finance within the company and later frame policies and parameters that will help the management of the business to steer it towards a better and productive future.
The format of fund flow statement can be divided into three sections, as detailed below. It is necessary to understand what are the elements included in each part so that the format can be made correctly.
In order to understand the statement fund flow statement format in excel properly, it is necessary to learn how to prepare it using the format and the financial data that we get from the financial statements and annual report of the company. Below is a detailed explanation of how we should proceed with the preparation as per the accounting rules.
The statement of changes in working capital reflects how much the amount of working capital has changed. This is calculated by deducting the value of current liability that we get from the balance sheet, from the value of current asset, which is also available in the balance sheet.
The working capital can change significantly due to many factors. Sometimes the company management does not take into account the immediate short term fund requirements and keeps on investing funds for long term purpose, thus, making the value of current asset reduce considerably. This situation is risky and may result in unexpected delay and setback within the business. The company may also be very eager to pay dividend to gain shareholder’s faith, without accumulating money or profits for use within the business, bring down the working capital. Again, over lending or over borrowing, both are harmful and may affect the working capital negatively.
After preparing the statement of change in working capital, now we need to prepare a report of funds from operations:
In this statement, we will take the profit/loss from the profit & loss a/c. But then, we need to adjust profit/loss.
We prepare profit & loss accounts on an accrual basis. However, in this non-cash expenses like depreciation, bad debt, and any expenses written off are also considered for getting the actual profit or loss.
We will add back or less, as the case may be, those non-cash expenses, and we will get the cash profit/loss.
Finally the step comes where the format for preparation of fund flow statement is used to make the document. The format is already specified in the article above. All the important sources of money and their areas of application will be considered and detailed over here. This part of working capital fund flow statement format is extremely important and useful for analysis and taking decisions regarding financial operations like investment in projects and expansion, issue of dividend to shareholders, borrowing of funds for business growth, etc. Overall this will decide the creditworthiness of the company.
Let us look at the example given below and understand how the format is prepared and used in an organization.
Now we will see the working capital fund flow statement format of the “statement of change in working capital.”
In the below format, we have assumed the current year’s profit is $20,000. Then we have identified non-cash items which have been deducted in profit & loss a/c, which is $3,230, which is now added back to the current year's profit. As a result, a non-operating item added in the profit & loss account of $120 has been reduced from the current profit.
After adding and deducting non-cash or non-operating items, we will reach the position in which fund flow from operations can be derived, i.e., $23,110.
Last, we will prepare the fund flow statement.
| Statement of Sources and Application of Funds | Current Year |
|---|---|
| Sources of Fund | |
| Fund Generated from Operating Activities | 23,110.00 |
| Proceeds from issue of Share Capital | 5,000.00 |
| Total Source of Funds | 28,110.00 |
| Application of Fund | |
| Purchase of Fixed Assets | 21,610.00 |
| Increase in Working Capital | 6,500.00 |
| Total Application of Funds | 28,110.00 |
The above are two different formats or financial concepts that are used to track and records the fund utilization process of the business. However, there are some differences between them, which are as follows.
Thus, the above are some noteworthy differences between the two formats.
One may calculate it by deducting interest income and profits earned on selling an asset from net income for the given period and adding interest expense, depreciation, and losses on asset sales.
What are the main objectives of preparing fund flow statement?Preparing a fund flow statement is to recognize the reasons for changes in the liabilities, assets, or equity capital.
What are the limitations of fund flow statement?The fund flow statement does not consider other features from the balance sheet and profit and loss account. Therefore, it must be checked alongside the balance sheet and profit and loss account, and it also does not display a company's cash position.
How does cash flow statement differ from fund flow statement?The cash flow records a company's actual cash inflow and outflow. In comparison, the fund flow records the company's in and out of cash flow movement.
It has been a guide to what is Fund Flow Statement Format. We explain it with an example, differences with cash flow statement format & its 3 parts. You can learn more about it from the following articles –
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